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Pretoria - Finance Minister Pravin Gordhan plans to cut the deficit substantially over the next three years, going some way towards allaying fears that there might be a strong lurch to the left that will see government debt skyrocketing.
Government's deficit for the present fiscal year is projected at a high 7.6% of gross domestic product (GDP) - far exceeding former finance minister Trevor Manuel's plan for a 3.8% deficit.
The deficit was last at this level in 1993, when the National Party delivered its swansong. The huge deficit this year was mainly the result of a R70.3bn shortfall in revenue in the present fiscal year, which reflects the economic recession.
Deficits are expressed as a percentage of GDP to show what proportion of the economy is taken up by net state borrowing. A deficit is the difference between spending and revenue, with spending exceeding revenue.
Gordhan plans to cut the deficit to 6.2% of GDP next year - a decline of R21.7bn in rand terms. This is still a high deficit, given that the normal benchmark is 3%, but is justified given the bleak outlook for the economy.
He then projects a deficit of 5% of GDP for 2011/12 and 4.2% of GDP for 2012/13.
Though the deficit remains above the key benchmark level of 3% of GDP, it's important to note that, all over the world, governments are going to be struggling to get deficits under some kind of control - let alone to 3% of GDP.
But to people who thought that SA was doing that much better than its international counterparts in the US and the UK, where budget deficits of about 12% of GDP are the norm, the MTBPS paints a different picture. What's important for measuring the fiscal stance is the swing in the deficit, and not its absolute level.
The Medium-Term Budget Policy Statement (MTBPS) said the swing in SA's budget balance is among the world's largest, comparable to that of the UK and the US. In contrast to many countries, SA entered the crisis with a fiscal surplus and government debt at historic lows. The swing in the country's deficit was about 8% while that of the US is about 10%.
Government's borrowing requirement - the deficit plus debt falling due - will hit a massive R175.8bn this fiscal year, against a budgeted R90.4bn. This will drop to R167.6bn in the next fiscal year and R145bn in the 2012/13 fiscal year.
Despite the decline in the deficit, government's net loan debt as a proportion of GDP will rise sharply to 41.1% of GDP in 2012/13 from 22.6% in the 2008/09 fiscal year. The rise takes debt to the same levels as was the case when Manuel implemented Gear (the Growth, Employment and Redistribution strategy) in 1996.
- Fin24.com